Company FDs with high rates may not be your best investment option-:

 

Several companies such as Jaiprakash AssociatesBSE 0.08 %, Allied Digital Services, Plethico PharmaceuticalsBSE 4.98 % are offering 12-12.5% interest per annum for three year fixed deposits, a good 3.25-3.75% more than what is offered by banks like State Bank of IndiaBSE 0.82 % (SBI) or ICICI Bank. Despite the higher rates, many financial advisors are asking investors to be extremely selective and choosy while investing in company fixed deposits, as there have been many instances where companies have just not repaid the money or delayed payments.

For example, Ankur DrugsBSE -1.56 %, Asian ElectronicsBSE 1.08 % and Birla PowerBSE 0.00 % have delayed repayments in the recent past. Ankur Drugs' capacity expansion plans got delayed due to funding issues, while labour problems crippled production at one of Birla Power's manufacturing facilities. "Since company fixed deposits are unsecured instruments, investors should be extremely careful before investing in them. As a benchmark, any company paying 2%, or 200 basis points, more than a bank deposit should be scrutinised thoroughly and risk-averse investors could simply skip them," says Sreekanth Meenakshi, founder, Funds.india.com.

"When choosing company deposits, invest in listed companies only as the financial information is available in the public domain. Check the industry in which it operates, promoters' track record, look out for pledged shares, and go for profit-making companies with a track record of at least three years," says Anup Bhaiya, MD and CEO, Money Honey Financial Services.

ARUSI SINGH

PGDM 2ndSem